Alrighty. Testing. Testing. One, two, three. Great.
Thanks, everyone. I'm still Chris Dainley, your friendly neighborhood semiconductor analyst here at Citi. It's I guess it's Top Pick Morning, another one of our top picks here, Texas Instruments. And like I said, I'm a simple man. So why is TI one of our top picks?
One of the highest, in fact, the second highest margin and earnings growth in the semiconductor universe. We think roughly, you know, 80% to 90% earnings growth from the current estimates today. Actually, that was 100% earnings growth from the estimates today two quarters ago, but these guys are doing such a good job this year that the numbers have gone up already. So now it's down to 80% or 90%. Anyway, it's my pleasure to have Rafael Lazardi, the CFO and also Mike Beckman, the newly minted VP of Investor Relations. So Rafael, thanks for coming.
Thanks for inviting us. It's good to be here.
Of course. And so you guys were one of the first companies to call out a recovery earlier in the year.
Maybe just sort of take us through how the year has gone so far, like what you saw, you know, clearly, things have have bounced nicely, you know, just give us sort of a time line on what's happened this year.
Yes. So there our sense is the recovery is underway. It is happening. It's broad based. We're seeing four of our five end markets in recovery.
The exception of that is automotive. But it's not quite happening a snapback as maybe some people anticipated or as other recoveries have happened. So that part is a little different. And some of that, we think, could be due to uncertainties on the macro level. Some of that, as I mentioned, is because automotive is not quite recovering like others.
But we are in recovery, it's just not quite like it's been other places. Now as far as our strategy on that, we remain steadfast on our approach. We have embarked investment on manufacturing and technology. We have several clusters of U. S.-based factories in Sherman and Richardson, both in Texas and then in Utah.
And we are very close to finishing what we call Phase two, which is the brick and mortar. And then when we get to Phase three, it's just incremental capacity based on demand. So then the CapEx is just size for what's needed on a demand basis as opposed to just big chunks in brick and mortar. And of course, we'll continue to focus on our long term the long term growth of free cash flow per share, which we believe is what drives value for investors long term.
I might just add to that. The recovery that's underway, what we saw in industrial join that recovery in first quarter, it continued in the second quarter, very broad across the sectors. And as Rafael pointed out, if you can just take a step back and look at global shipments, even outside of just TI just overall for our industry, it is recovering, but probably at a different pace than historical cycles. But what is continuing to grow for us and what we see in the opportunity in this cycle is there's more content. And industrial applications that we sell into automotive for us in the future, the TAM that's expanding in enterprise and data center, those are all areas we'd love to talk more about to the opportunities there.
But that expansion, the end equipments that weren't there a few years ago, they're there like robotics, that's expanding. And so we see the opportunity continue to grow. So through this cycle, we'll we'll see how it plays out. But, you know, we are very excited about what this recovery is going hold for us long term.
Mhmm. And with this improvement in business, at least in four of the five end markets and, you know, various geographies out there, how would you characterize your visibility right now, maybe versus three months ago or six months ago? Have you seen any change, any improvement, any anything there?
I'll start. I'll give you a a few comments. One, our lead times remain really low, and that is by design. So we have capacity in place. We have inventory in place.
We have new processes internally where we are building more buffers than we used to before. So our business is largely a catalog based business, not entirely, of course, but largely more than half of our revenue is on catalog based business. So we can build to stock. And so even though we're already in an upward progress with the cycle, we can keep those lead times short. The other and we expect to continue to do that through the upturn.
If we're successful in our strategy, we will keep those lead times short through the upturn. The other comment I will give you is that the aging orders or orders inside the quarter, which are good leading indicator, those were pretty strong January through April. And April in particular were really strong and we think some of that was due to the Liberation Day and some of the dynamics that happened there. But then things did slow down after April or at least didn't grow as they normally would have a month, a month, a month. And again, of that was the Liberation Day potential pull ins and we talked about that at some length at the at our July.
Okay. So let's dig into a few of those. You guys have been the pioneer in a number of things in the analog space and in semis in terms of honing down your distribution and also increasing inventory. Maybe just talk about sort of your unique situation for inventory. I get questions on this all the time.
TI has all this inventory. Isn't that going to be bad? Aren't they going to have to write off half of it or whatever? Maybe just talk about your sort of inventory goals in terms of days and why TI can keep more inventory than other semiconductor companies.
Yeah. So a couple of things. Mean, there are Mike, please, if I miss anything. But there are a couple factors that are driving our inventory strategy that is different than than other companies. One is, as I mentioned, that our business more than half of it is catalog.
So things of you know, think of hammers and nails. Right? You go to Home Depot, you don't expect to place an order for twelve weeks. Right? You you can get those parts.
Now not every company can can sell the parts that we sell, but it's catalog. So they sell to many, many customers. They're not designed for any particular customer. The other aspect of the strategy is, as you alluded to, we reduce our exposure to distributors significantly. We used to ship 70% of our revenue to distribution.
Now it's about 20%. In fact, less than 20% of our revenue goes to distribution. The third aspect that's also relevant here is that we are shipping more and more we're building more and more internally. So when we're close to now 90% of our wafer fabs of our production from the front end is internal on the wafer fab front. And then on the back end, I think it's close to 80%, 85% is internal and that's up from 8060% respectively.
So as you bring more internal, that puts upward pressure on your inventory levels. Now having said that, depending how the our to to to answer your question on inventory days, inventory days, I think, last quarter close to two twenty five, if I recall correctly, to 21. And, you know, remember, days is a backward looking metric, so you really have to think about it on what you want to have for the future. And we have a framework for next year's revenue, 20,000,000,000 to $26,000,000,000 we put that out there. If we're at the lower end of that framework for next year, and you'll hear more about that in October and January.
But if we're at the lower end of that, then we'll have to adjust our wafer starts down to manage our inventory better and to either keep it flat or drain it. So that would bring a lower wafer starts in the coming quarters, which would have repercussions in the P and L. But at the end of the day, it's the right thing to do. And that would last a couple of quarters until we adjust digest that inventory and then get going again.
When you think about our portfolio, which look across what we consider general purpose all the way to ASP, it's a spectrum. And if you think about the economic relevance of a device, when you release it, that device can ramp for decades and continue to grow. And you think about the number of customers around the device, the mix of applications that it's on, and then you take a step back and look at the allocation of capital to inventory and you go through any of these previous cycles, having inventory is really vital to making sure you could seize the opportunity. And we don't want to let that be something that keeps us from being able to seize that next opportunity.
So it's an important allocation of capital is how we look at it.
Yep. And with this, know, keeping the lead times flat, you know, your results have been pretty good for the last couple of quarters. Have you seen an increase in turns business, like within the quarter, you know,
moving higher throughout the year? As I alluded to earlier, January through April, yes, especially April. But then things slow down after April, after Liberation Day.
And we don't comment on inside the current quarter, we'll talk about that in October. But Chris, that did and we saw the turns business begin to transition positive in early twenty twenty four. So kind of first quarter of last year, it began to transition and grew every quarter throughout 'twenty four into first quarter 'twenty five, into the beginning of second quarter as well and then began to moderate in the back half of last quarter.
Okay. And then with the lead times flat and yet sales increasing, you guys the inventory has been coming down. Do you think that you'll be able to keep these lead times flat if the recovery continues? How are you modulating utilization rates?
So between the capacity that we have, that we've added and the inventory that we have in place and processes that we have internally with the buffer strategy and a lot of different things that we've done internally in our processes. The answer is yes. We expect to maintain short lead times through the upturn.
Great. And then you talked about another unique thing about TI is that you're sort of moving towards more internal manufacturing.
Correct.
Some of the peers that are 50% outsourced or even more. Maybe just go through some of the advantages of increased internal manufacturing?
Yes. So first, you control your own destiny. You control your supply chain. So that gives you a lot of advantages in terms of this the supply, the manufacturing, the delivery to customers. You also have a lot of advantages in the design process when you own that.
You can just integrate better the front end and the back end and packaging and different things on that front. But then the other key is your cost. Now you have to be a leader in order to claim this, right? It's not just you have internal manufacturing, you have better cost. You have to have a world class cost footprint, which we do.
Part of that is obviously the 300 millimeter footprint, because that 300 millimeter is significantly less expensive on a per unit basis, 40% less expensive than 200 millimeter. And because that's internal to us, not through a foundry, we get to keep those cost savings, either keep or pass them on depending on the competitiveness of the particular end market and product that we're selling.
Great. Let's jump into another comment you made earlier just on the pull ins. So we've had various numbers of your competitors talk about pull ins. It's 5% to us. It's 1% to us.
We're seeing some. We're not seeing some. We're seeing a ton. Maybe just run through the metrics for TI on pull ins and what you saw earlier this year. And are we done with it?
Are we maybe not done with it? How can we tell that we're done with it? What sort of, you know, tea leaves are you guys reading? Or if you just skip straight to the chicken bones
like So incredibly difficult to to tell what is exactly and what's not. Okay? The customers don't send you a note with their orders to tell you exactly what that is. And, of course, we have 80,000 different different customer, 100,000 different parts. So every the permutations are endless.
But our sense is that the orders in April were had a high component of pull ins because of the Liberation Day and the uncertainty going on there. And since then, there's been a digestion of that. How long that last, don't know, we'll report on third quarter in October and we'll give you our best sense of what's happened in third quarter and then our sense for what that means for fourth quarter.
I think you just put yourself in the shoes of a customer in April and there was a scenario where you had an opportunity where there was a pause or there was no tariff to worry about and you already had very low inventory, would you take that opportunity to get a little bit more on your shelf?
Yeah.
And where this gets difficult to completely tease out is there's also recovery happening at the same time. So how much of each of the components are playing a role? Like you said, we don't have a checkbox to be able to determine that.
But it it's, I think, not a it's not a challenging leap to assume there was some of that that could have occurred.
Yeah. Hey. And let me pivot a little bit to maybe a slightly bigger picture so that we don't miss that and is how well prepared we are and how well our strategy is working to set up the company, set it up for the longer term secular growth trends that are happening in the industry in industrial, in automotive, in data centers. We have expanded our manufacturing footprint in The United States primarily with geopolitically dependable capacity that our customers really value.
And then at the same time in the assembly test in Malaysia and The Philippines primarily. So we have a footprint that will set us up really well for the coming years to capitalize on those secular macro trends.
So I'm guessing the move to manufacture more in
The U. S. Is not going to be a deterrent or a problem for Texas Instruments?
No, no. In fact, it's an advantage as I alluded to and it could become even more of an advantage as time goes on.
So I did get a few questions from your some of your larger shareholders to ask. One of them is on just the whole move to manufacture and the chip sack money. I think you guys have taken some chip sack money so far. Any risk?
This is direct from the shareholder, any risk to the U. S. Government taking a stake in TI as a result of the ChipStack money?
Nothing along those lines has been discussed, has been proposed. We have not been approached on any of that As far as that goes, we have an arrangement, an agreement with the government that was signed under the previous administration. And then we reworked that agreement over the last six months or so with the new administration on some very minor things that were all favorable to TI. Frankly, there were little things they wanted to change, but nothing along the lines of what you're hearing from companies like Intel.
And we've been executing really well to the CapEx expansion plans where our fab two, we're building that out SM1 with the pilot line, we're ahead of schedule and getting that to where it needs to be. We've got SM2 with the shell in place, L fab one tooling that and then getting clean room, partial clean room built for that. We're working toward those milestones that are associated with those projects. You probably saw in June, there was an announcement in coordination with the administration and several of our customers as well just in their support of what we're doing. So we've been well aligned in the direction.
Yeah. I'll also mention that people think of the chips grant or the chips money as the grant. The grant is only well, I say only, but it's $1,600,000,000 for us. But on the ITC, the investment tax credit, we told you, I think it was a couple of years ago when the law was signed that we expected 6,000,000,000 to $9,000,000,000 in total, primarily from the ITC. Well, that number just went up as the ITC went from 25% to 35%.
And other things have also happened that have given us a better understanding of the ITC where it's I think we're going
to get even more money on that front. So that is really the bigger lever, the ITC rather than than the direct funding. I was hoping you said. Okay. Thanks.
We checked that box. Two more. One is there's been several reports of TI raising prices out there. Is this happening? Is this a good thing?
Do you guys raise prices on certain parts every week? Maybe just give us some perspective on that. I had a lot of nervous Nellie's, please ask Rafael about this.
Maybe I'll take it and Rafael, please add. But part of just good portfolio management is just making sure your products are priced to where the market needs to be and are consistent with that. That's a routine practice that we have. So that's not a new thing we just have all of a sudden realized. We always are making sure our products are priced effectively.
No change in our view of the long term kind of base case assumption on price over time, kind of low single digit 2%, 3% kind of decline over time. That continues to be how we view the base case assumption on price over time.
Great. And last one, then we can dig into the to the other long term stuff. I remember Habib was asked a question on the conference call that, hey, you guys seemed a little more bullish earlier in the summer than you are right now. I had a number of folks asking me for some, like, clarification on that. Were you guys a little more bullish at the beginning of the summer than you are right now? Or is that just, you know, people making stuff up essentially? Fake news.
You know, my sense is not just with TI, but the industry as a whole, the tone was a little different in April and May than it was in in July and August.
Mhmm.
And and maybe not nothing quantified, but the tone. And I I think that was a function of those orders Yep. The order trends that I referred to earlier that April was pretty strong.
And but it appears that some of that was pull ins. Again, it's hard to tell with so many permutations on orders and customers, but it looks like some of that was pulling. So that was that's why I said earlier that the recovery is underway, but it's just not quite snapping back like some people thought at one point or maybe as those early indications or early signs may have indicated. Yeah, and
the long term structural growth opportunity we have that continues to strengthen that has not changed. In fact, it's continued to grow, just the opportunity continues to get bigger for us.
Great, so then we can jump to my questions now. So gross margins, obviously, we're forecasting some nice gross margin expansion for you guys. Rafael, can you run through the gross margin drivers between utilization rates, mix and depreciation? And then we'll start to dig into Sure. CapEx a
Yeah. Yeah. So the first and foremost important driver is revenue. There's no question about that. So we got to grow the top line in order to get margins higher.
The guidance that we've given is use take the revenue and fold that through at 75% to 85%, so pick the midpoint there 80%. So we get an extra $100,000,000 of revenue, we get $80,000,000 of gross margin. But then you have to adjust for depreciation and depreciation is increasing just given that the CapEx that we're spending eventually hits the P and L. Now of course, keep in mind that depreciation and equipment is we use five year straight line, but that equipment lasts a lot longer than that. So that's why with depreciation, you got to be careful not to how you take that information and make your judgments on the company longer term.
That's why free cash flow is a better metric, we think, to use over the long term. But there's so revenue, there's depreciation, but then there's also utilization, as you talked about. And utilization comes and goes, right? That over a long enough time is kind of steady and it's not impactful. But over the short term, it adds or detracts depending on what's going on.
As I alluded to earlier, given the inventory position that we have right now and depending on what happens on revenue next year, we may need to adjust factory loading down in the coming quarters for a few quarters until we rectify the inventory situation a bit and just stop it from growing and maybe drain it and not maybe, likely drain it for a few quarters. So that would put a headwind on gross margins, but it should be temporary for a few quarters until rectify the inventory situation.
Can you just run through the latest CapEx figures for this year? And then I think you've given a range for CapEx?
Correct. Yes. So for this year, count on about $5,000,000,000 again. So it's going to be three years in a row of $5,000,000,000 and before that we had a couple of years of high CapEx as well, not quite five, but close to that. So far by the end of this year, going to be five out of six years of high CapEx intensity with the company.
Now next year, we put out a next year, we put out a framework. Last year, we put it out for the first time and then we put it out again in February at the capital management call. Is 2,000,000,000 to $5,000,000,000 And that depends on our revenue expectations for next year and beyond, of course. So those revenue expectations, we put up four scenarios, dollars 20,000,000,000, 22,000,000,000, 24,000,000,000 and $26,000,000,000 of revenue for next year. And at the high end at $26,000,000,000 the CapEx would be 5,000,000,000 and at the low ends would be 2 to $3 And just take our midpoint for this quarter and expectations for if look at consensus numbers for next year, seems that we're more likely than not to be at the lower end of the framework than we're not.
We're not calling it yet. And we call one quarter at a time, but and we're prepared for any scenarios, any of those four scenarios with capacity and inventory. But right now, it seems that more likely than not the lower end of that framework is the more likely scenario. So therefore, you would expect and again, we're not making an announcement, we'll talk about that later this year or at the beginning of next year. We would expect CapEx to be at the lower end.
Now there's a floor on CapEx at $2,000,000,000 that's a hard floor, because we're still building some brick and mortar, primarily in LFAB 2 in Utah. So you don't want to stop the building the factory halfway, so you got to finish that. So that's why there's a floor in 2026 of that $2,000,000,000 So again, if we're at the lower end of that revenue, expect the CapEx to be towards the lower end, let's say 2,000,000,000 to $3,000,000,000 or so of CapEx. Okay.
And you might recall that about a year ago, we talked about there's a Phase one, Phase two, Phase three to the CapEx. This is essentially us moving into that third phase of modularity to the tools themselves, being able to add them as we need them. And we have scalability in the CapEx itself. So we're moving into that kind of third phase as we start having that ability to do that.
Great. And then last thing is just depreciation. I think you guys have given some metrics on depreciation ranges as well. Can you just run through those for this year?
Yeah. For this year, for '25, con and no change. So so what I'm about to say is the same as what what we said before. But for this year, 1,800,000,000.0 to $2,000,000,000 of depreciation and for next year, 2,300,000,000.0 to $2,700,000,000 but likely at the lower end of that range. So let's say, 2,300,000,000.0 to 2.5 is the range for next year.
And when would depreciation peak? Well, it depends on CapEx. But if CapEx is at next year's CapEx in 2026, if CapEx at the lower end, as I said a little while ago, we probably have one more year of upward we would probably have one more year of upward pressure on depreciation in 2027 before it stabilizes.
Great. Let's just dig into the end markets a little bit. We had some crosscurrents yesterday on automotive. You talked about basically everything is working except for automotive.
Why do you think the automotive market has been the last end market to bounce back here?
Yes. And some of this could just be first in, out. Auto was the last end market to begin its inventory correction. And it didn't have as you've probably seen, the level of decline that it had was much more shallow compared to the other end markets. And if you look at it in totality, it's been kind of hovering at this shallow trough for some time.
You look deeper inside and start looking at the regions and we've had some regions outperform. China has performed very well in automotive. We've got a very broad exposure. You look across the region set, it's pretty well distributed to the size that those markets are. So we don't have a significant skew either way.
So wherever there's a socket, we're going to be playing a role in it. And so, you know, we'll have to see how it transitions. We're not saying that it's not working. It's just, you know, it's too soon to call a broad recovery there. You compare that to an industrial where you look across every sector and it's double digit or close to double digit growth across every sector, you know, on a sequential basis.
I just don't think we can say the same thing yet with automotive.
Sure. So let's that's a nice segue into industrial. It's been by far, I think, your strongest end market this year. And you think that's just the, you know, first in, first out type of comparison there that it was first into the correction, so first out.
And I think there's still plenty of room to go on the industrial side because it's, I think you guys talked about it's still pretty far below the previous peak. So maybe just run through those metrics and some commentary there.
It is. It's well below its previous peak even with the growth that we had in second quarter. I think second quarter was up mid teens both year on year and quarter on quarter. And that's a pretty strong level of growth for industrial. And I think this is partially a reflection of that end market went through a pretty substantial inventory digestion and just across our industry.
And obviously, Rafael was talking about lead times being short. It's a long tail of many, many customers, some very small, some larger as well. But if you had inventory and to work it down, sometimes it could take some time. And I think our industry saw that, got to a point where that inventory starts to get small and customers have to start resuming ordering again. And I think we started to see that stabilize in 2024, started to see that early signs of growth in first. I think that was when we first called that, hey, this is starting to recover. And then that was reinforced again with what we saw in second quarter. And again, what's encouraging is you look deeper into the sectors within some of those sectors last year like factory automation that was just continued to decline double digits, beginning to recover, showing that double digit growth. And it's not one region doing it. It's across the board. We're seeing significant growth there.
Great. Yeah. Let's just dig into the geos getting into might as well start with China. The whole China for China move, not so much a brand new move over there. I'm sure that's been going on for quite some time.
Any impact to TI? And maybe talk about your how your sort of business trends have been in China so far this year?
Yes, I'll start and Rafael, feel free to add. But I'd say first, the performance has been pretty good. If you look at our results in China, and I think our advantages have served us well there. First, to size it, it's about 20% of our business roughly, if we look at our headquartered revenue is out of China. And what our customers care about there, they want the best parts.
They're not building products that they want to have be inferior, they want to have the best systems. And so that means we're going to buy great products to solve their problem. I think when you look at a TI portfolio, I can buy the majority of the parts I'm going put on a board without having to go to a dozen different suppliers. That makes us really easy to do business with. We make sure it's available for you, make sure that when we sell it to you, we've got a lot of ways to make that very friction free for you.
So we make ourselves be really easy to work with. And I think if you do that, you can be successful there and I think we're seeing the results of that. But at the same time, I think we have to acknowledge that it's going to be and this has been over a long period of time that this has happened. This is not a new conversation, but that you'll have to earn the business. You can't just show up and assume you're going to get the socket, you got to have the best part.
But if you do that, you can win. And remember, a customer in China that designs in a TI part is likely going to want to use that not just in China. Maybe they want to sell that in places like The U. S. Or in Europe or in South America and other geographies.
So having access to our capacity, which is very geopolitically dependable, very diverse, gives you a lot of options and meets the flexibility our customers want to have across the globe. It gives us a good opportunity there.
Great. What's been your strongest geography so far this year? China. Had to get that in there. All right.
So another thing about TI. You know, if you look at your sort of growth or revenue growth metrics, you undergrew the competition from, I think, '21 to '23 or something like that. And yet last year and this year, you've been outgrowing the competition and the space. What's changed? As CFO?
Yeah.
Well, then I'll start. And and, Mike, you go you go ahead. But during 2122 time frame, we we lost share. Yep. K?
And some of that or a lot of it was we hit supply constraints. And we didn't have RFAP two ready on time to to handle what what came at us during the pandemic and the post pandemic. So that's part of the reason why we are operating very differently now, And we have added capacity in a significant way because we're not going to be cut like that again. And with that with those additions and with the inventory strategy that we have and the processes that we put in place internally, we have been able to regain most or all of that share in the last year, year and a half, particularly, but not only in China. China was a place where we disproportionately took a hit during that time.
China and in personal electronics, whether you look at it by end market or by geography. So we're in a much better position now than we were a couple of years ago.
And Chris, if you look at the portfolio, we have especially when you look at the analog side first. The portfolio that we have, it's very clear that we have the parts we need to be successful. And we're building new products every year. That's always an area we're going to want to make sure we have the best parts in. But we have a strong portfolio.
We've got the opportunity in front of to win that. As we look at Embedded now with also the changes that we've made, that portfolio is very different than it was five years ago and even ten years ago. Big change in making sure that's a much more diverse set of products, attacking a lot more markets inside of embedded, very industrial and automotive focused. And so we're going into this next cycle with an analog business with a strong portfolio, a great ability to service our customers through our channel as well, and an embedded business that also will contribute to that growth at the same time. So we expect growth out of both of these businesses.
Would you say that TI has maybe gotten a little more aggressive out there in terms of the business and the share gains in the last like years? Could that be I've I've just heard that from some folks that that are your customers and your competitors. Is that maybe just something that they're picking up or falsity? Or what do you think?
I think we're being more assertive, yes, on various fronts. Our engagements, various strategies that we use. The inventory is a good one as well as a good example to point to. We're going to take it, and we're ready to win.
Great. Last question since I have the CFO. I to ask, even though we're here at the bottom of the cycle or bouncing off the bottom of the cycle, you guys are still generating a ton of cash. You've been one of the pioneers in terms of splitting the dividend versus buyback, although the buyback has slowed down a little bit somewhat recently. Any reason why the buyback has slowed down? And then also, I know you guys have traditionally shied away from M and A.
Is there any, like, potential for future M and A? Or is that door pretty much shut permanently?
Yes. So a lot on that question. So let me see if I can address it all in the minute that we have left. On the capital allocation side of the question, big picture, our goal is to return all free cash flow dividends and buybacks and we've been doing that. Now of course, the last few years free cash flow has been depressed with the higher CapEx.
So it's been relatively easy to return all free cash flow since the dividend alone has accounted for more than the free cash flow. But we have continued the buyback. And as you pointed but as you pointed out, it's been slower it has been lower than in previous years. And that's just because the focus has been on CapEx. When you capital allocation, it depends on what's going on.
And over the last few years, CapEx has been the primary driver of the primary call on capital at the company. As we as that subsides over the coming years, then free cash flow will improve and then we'll have more free cash flow to distribute between the dividend and the buyback. So our expectation your expectation should be that we'll continue to do that. On M and A, things haven't changed. We continue to evaluate companies primarily on the analog side.
And it's got to make a good sense strategically. And then the numbers have to add up. We continue to assess different opportunities. And if those present themselves, we have a strong balance sheet. And as you pointed out, good free cash flow.
So we have ample room to make something happen. But strategically, we're really well positioned. We don't have big holes in the portfolio that we have to go out and fill. So it's not something that we need to go out of our way to do that, but we always assess that as needed.
Great. Thanks, Gang. We're out of time. Thanks, everyone.
Thank you. All right.